Banking Crisis? Not an Issue for BW Group or NOL

2012 is broadly expected to be challenging for both shipping lenders and borrowers. As long as the Euro debt crisis persists and continues to worsen, capital will become increasing scarce. Even shipping companies at the top of the pyramid are busy strengthening their balance sheets and making sure that they have adequate funds to meet capital expenditure requirements in the coming years.

One of the world’s leading maritime companies BW Group has successfully completed a USD 1.5 billion seven-year revolver in mid-November. According to market sources, the proceeds will be used for refinancing and the participants are largely from the previous revolving facility. Pricing is said to be “slightly higher” than the previous revolving facility, although it remains highly competitive in today’s tight market conditions. Continue Reading

NOL Raises More Cash – The MTN Way

Neptune Orient Lines (“NOL”) has sold SGD 300 million (USD 243 million) worth of notes under its USD 1.5 billion Euro Medium Term Note Programme. This marks its second note issuance since its maiden SGD 280 million 10 year 4.65% notes in September 2010. The latest offering is SGD 20 million larger in size, but pays investors an annual coupon rate of 4.40% or 25 bps lower than the previous issue for the same 10 year tenure.

The notes are expected to be issued on 22 June 2011 and mature on 22 June 2021. The issuer has the option to redeem the notes, in whole or in part, at any time on or after 22 June 2016. The net proceeds of the notes will be swapped from SGD to USD and used to partially finance the purchase of new containerships in 2011. DBS Bank, Standard Chartered Bank and HSBC are the appointed joint lead managers and bookrunners for the offering. According to DBS, demand for the notes was so robust that the offering was enlarged from its original book size of SGD 200 million to SGD 300 million, after being oversubscribed by more than SGD 700 million. Continue Reading

Asian Liners Get Their Game On

Soaring bunker prices have motivated container liners to re-examine their strategy with a renewed focus on operating efficiency, cost reduction and high fleet utilisation. When market leader Maersk Lines announced its plans to pay USD 1.9 billion for 10 new generation 18,000 TEU vessels, it totally changed the rules of the game and has to some extent prompted other major carriers to look into ordering larger and fuel efficient vessels. Today, there appears to be some form of consensus among liner companies that they would need big ships that are over 10,000 TEUs to ply the Asia Europe trade by 2015 and possibly the Trans-pacific trade by 2020 to stay in the game. At the same time, some liner companies have also expressed their intention to build and own vessels to replace chartered-in vessels, so as to maximise their ability to manage excess capacity. During the shipping downturn, liner companies have realised that the decision to layup or sell vessels becomes much easier if they own the ships themselves.

At Marine Money’s conference in March, Kenneth Cambie, Executive Director and CFO of Orient Overseas International (“OOIL”), told delegates that he believes that container shipping is entering a watershed and it will be clear over the next six to nine months who is in the game and who isn’t. He reckoned that those players with the access to capital will be ordering larger ships and preparing themselves for 2015. The spate of newbuilding orders and the seeming lack of capacity discipline among liner companies have sparked market concerns, but while we leave the arguments and controversies to the industry experts, we agree with Mr. Cambie that the access to capital has become increasingly important to survival and in this aspect, Asian liner companies have the competitive advantage.  Continue Reading

Asian Shipping Bond Volume Falls 46% in 2010

In 2009, bonds came back in financing vogue for the shipping industry, with total volume in Asia reaching a record USD 7.6 billion. But a few questions have since been lingering at the back of our minds: “Will this trend continue in 2010? And have the investors gotten too far ahead of themselves and forgotten about the painful corporate bond defaults in 2000/2001?”

As we compile our list of shipping bonds concluded in 2010, some interesting findings are revealed. Total shipping bond volume in Asia has surprisingly declined at a larger pace than expected, down by close to 46% to USD 4.1 billion last year from USD 7.6 billion the year before. But before we hastily conclude that the access to bond money is fast disappearing, the sharp decline can partly be attributed to a number of market specific reasons. Continue Reading

Strong Interest for NOL’s Ships

Last Thursday, Neptune Orient Lines (“NOL”) announced that it has received “firm financing offers” from lenders and financial institutions, which have agreed to provide the company a total sum of USD 926 million to partly finance its 12 new containerships. In a statement to the Singapore Exchange, NOL said that the loans will make up about 78% of the cost of the vessels, and the balance amount will be
funded by the company’s earlier bond issue and from internal resources.

In July and August, NOL penned an order for ten 8,400 TEU and two 10,700 TEU container vessels with Daewoo Shipbuilding & Marine Engineering at USD 1.2 billion. The ships, upon delivery between 2012 and 2014, will replace the company’s existing vessels with charter agreements that will expire in the next few years. And in preparation for this massive acquisition, NOL as early in August issued SGD 280 million worth of notes under its USD 1.5 billion Euro Medium Term Note Programme(“MTN”). The 10 year notes, arranged by DBS bank carry a coupon of 4.65% and the net proceeds of the notes were swapped from Singapore dollars into US dollars. Continue Reading

Reaching The Light At The End Of The Tunnel

A breakfast meeting with a well respected shipping analyst from an investment bank this week was filled with pleasant surprises. Among which is the growing interest of institutional investors in the container shipping sector. “Last year, I can count with my fingers the number of institutional investors who agreed with my view that there is significant capital appreciation for containers. Now, not many disagree with me,” he relayed. Quick reviews on the market reports available on the sector appear to be supporting his observation.

A headline from the latest Alphaliner Weekly Newsletter reads: “Container freight rates on the main export trades out of China have risen by 24% over the last three months, providing some relief for shipping lines as they seek to return to profitability in 2010. The rate of recovery is much faster than expected, although rates on some of the short-sea sectors are still depressed.” Analysts at DnB NOR sounded optimistic, albeit more cautiously. They recognized the growth in world GDP over the next few years and operators’ ability to control capacity but at the same time, warned that the size of the idle fleet could overshadow demand. CIMB in Malaysia expects the carriers in the Transpacific Stabilization Agreement to attempt another round of increase during the May/June negotiations and believes that Asia-Europe spot rates are now profitable for most carriers. And perhaps, our friend is the most bullish among them all, maintaining his view that containers could surprise by posting incremental profits in the second half of this year. Continue Reading

The Importance of Self Preservation

In 2009, the equity markets had a roller coaster run, but some shipping companies found windows of opportunity for share placements, often tied to debt reduction. Self help through raising equity capital for balance sheet recapitalization is one way to ride through the difficult times. There had been varying degrees of success and among the most notable would be Neptune Oriental Lines’ (“NOL”) USD 972 million rights issue in June and NYK’s recently concluded JPY 116.4 billion (USD 1.3 billion) global equity offering. Continue Reading

NOL Rights Issue

With the strong support from state-owned Temasek Holdings, Neptune Oriental Lines (“NOL”) announced on Monday that its USD 985 million rights issue has been fully taken up. Looking closer at the numbers, over 97% of the total rights shares were subscribed by the existing shareholders (including Temasek), and the remaining will be allocated to shareholders who had applied for additional rights shares. The excess applications of 81 million shares represent 7.3% of the total rights issue or 2.58 times of the rights shares that were previously not taken up. NOL says preference will be given to the rounding of odd lots, and the Directors and substantial shareholders (including Temasek) will rank last in priority. The success of this massive offering will not be possible if not for Temasek’s commitment in underwriting the entire rights issue. DBS, HSBC, JP Morgan and Morgan Stanley were the lead managers of this issue.

In the latest report on NOL, J.P. Morgan says there is “limited downside to NOL” due less concerns about its balance sheet risks following its recent rights issue but there is better value in OOIL given the former’s cheaper valuations and longer term upside from its property development business in China.

Fun Raising Continues

As economists struggle to reach a consensus on whether the global economy has indeed begun a sustainable recovery or this is simply a slower pace of contraction, investors are just befuddled by the strength and endurance of the present stock market rally. But one thing is for sure, shipping companies are wasting no time in taking advantage of this broad-based improvement in market sentiment.

In Japan, Mitsui O.S.K. Lines (“MOL”) issued two series of secured straight bonds – bonds number 11 and bonds number 12 last week and raised over JPY 50 billion (USD 528 million). The first tranche of five year JPY 30 billion bonds carries an annual coupon of 1.278% while the second ten year JPY 20 billion tranche pays investors 1.999% annually. The funds will be used to repay existing borrowings and for the redemption of commercial paper. Both Rating & Investment Information and Japan Credit Rating Agency have assigned AA- to the bonds, acknowledging that the company’s well diversified earnings have a strong capacity to recover in a market turnaround. The bonds, although unsecured, come with a negative pledge. At the same time, the company is said to be in the market for a three year JPY 15 billion (USD 156 million) loan with SMBC as the sole bookrunner. The loan is priced at 30 bp over 6-month TIBOR (Tokyo Interbank Offered Rate). MOL expects some signs of recovery in summer this year and is implementing its JPY 40 billion group-wide cost reduction measures to secure stable long term profits. The ability to secure incredibly low cost funding and execute rapid fleet reduction will prove to be critical for the company emerge stronger in face of the crisis. Continue Reading

December 2, 1999

LAZARD SHUFFLE

Veteran shipping investment banker Hamish Norton left Lazard Freres, and indeed the shipping industry, yesterday to join the technology group at investment bank Bear Sterns. Lawyer and presidential confidante Vernon Jorden joined Lazards this week, though it is unclear whether even Mr. Jorden is diplomatic enough to work with shipping investors. Mr. Norton told us that the technology group at Bear Stearns has particular expertise in the areas of software and aerospace. While there is very little capital markets deal flow for shipping at the moment, in our view the field of maritime investment banking will be a bit less crowded when shipping deals start getting done again.

HIGH YIELD

HVIDE

After successfully rebutting a few criticisms of its plan of reorganization, Hvide Marine now has just one more date with the bankruptcy judge, on December 9th, and looks set to emerge from bankruptcy just in time for Y2K to erase all reams of documentation. We understand that Deutsche Bank is arranging the exit financing. The structure of the reorganization has been well covered in Freshly Minted, so search the FM Archive for details.

Those with sharp pencils and a penchant for penny stocks might want to take a look at Hvide common stock. The shares presently trade on the OTC Bulletin Board at around $0.13. Under the plan of reorganization, holders of common shares will receive a warrant for 1 new share of Hvide for every 124 old shares of Hvide held (about 8:1000). Old shares will be cancelled and warrants will have a strike price of $38 and expiration date 4 years from date of issue. Give us a call if you would like to take a look at Hvide’s pro forma 12.3 1.99 balance sheet which uses “Fresh Start Accounting” (i.e vessels have been written down from book to current market value). Continue Reading